VA Foreclosure Process and Mortgage Assistance for Veterans

It's no coincidence that VA loans have the lowest foreclosure rate nationwide. The combination of free mortgage counseling and the backing of the Department of Veterans Affairs provides added financial protection for these loans.

Still, financial hardships can occur that leave foreclosure as the only available option. We’ll talk about the VA foreclosure process, ways to avoid it and what to do if you have to foreclose with a VA loan.

Here are the key steps in the process:

1. Missed Payments

The process begins when mortgage payments are missed. Once a payment or multiple payments have been missed, the lender must try to contact you both by phone and mail. Their aim is to come to an agreement to bring the loan amount up to date and to discuss potential loss mitigation options.

2. Default Stage

Typically, a VA loan is considered in default after 61 days of no mortgage payments. The lender may issue a notice of default at this point, which signals their intent to start the foreclosure process, marking the beginning of the preforeclosure stage.

3. Preforeclosure Stage

The preforeclosure stage is an opportunity to resolve the delinquency and avoid formal foreclosure proceedings. Federal law mandates that most borrowers, including those with VA loans, are afforded 120 days to work out an alternative to foreclosure before foreclosure can move forward.

4. Petition To Start Foreclosure

If the mortgage payments cannot be brought back on track, the lender will petition the court to start the foreclosure process. The court then appoints a trustee to oversee the auction of the property.

5. Auction

The trustee will auction the property, setting a minimum bid based on the property’s appraised value, the balance remaining on the mortgage and any unpaid taxes or liens. The highest bidder who meets or exceeds the minimum bid wins property ownership.

6. Post-Auction

If the minimum bid is not met at the auction, the property becomes a real estate owner (REO) property, meaning its owned by the original lender. In such cases, law enforcement officials will issue an order to vacate if you're still in the property and lock the doors for the new owners.

Each step in this process provides the borrower with opportunities to work with their lender to devise a solution to avoid foreclosure, making early and proactive communication essential. If you ever struggle to make mortgage payments, contact your lender immediately to explore solutions.

How to Prevent VA Loan Foreclosure

VA foreclosures can have significant ramifications, so it’s critical to do everything possible to avoid it. Thankfully, the VA provides several tools and options to keep your home.

Here are some tips that can help forestall foreclosure:

Contact Your Servicer or Lender

The first step when you're having trouble making your mortgage payments is to contact your loan servicer or lender. They can provide details about available options and work with you to find a solution. Ignoring the situation or delaying this conversation can result in fewer available options.

Keep Up With Mortgage Payments

Your monthly mortgage payment is due on the 1st of each month. Although you have a grace period until the 15th of each month without late fees, making your payments earlier can help prevent falling behind and potentially facing foreclosure.

Take Advantage of VA Financial Counseling

The VA provides free financial counseling to Veterans and surviving spouses. This service is available even if your loan isn't VA-backed. VA loan technicians can offer you financial counseling, help you negotiate with your servicer and guide you toward the best solution for your situation.

If your VA-backed loan is 61 days past due, the VA will automatically assign a technician to your loan. However, you can proactively request one at any time.

Service Members Civil Relief Act

The Servicemembers Civil Relief Act (SCRA) is a U.S. federal law designed to offer various legal and financial protections to active-duty service members in the military or other uniformed services.

The SCRA offers a few benefits for service members:

• Interest rate reduction on any loan to a maximum of 6 percent. The reduction only applies to loans taken out before active duty service. It applies throughout active duty and for an additional year after active duty ends.
• Protection against foreclosure on their home. A mortgage taken out before active duty service cannot be foreclosed on without a court order during active duty and for one additional year after the service member leaves active duty.
• If a lease was signed prior to or during active duty, it can be terminated without penalty.

Plans to Avoid Foreclosure

There are several plans that help you avoid foreclosure. Below are six widely-utilized options:

1. Repayment plan: If you've missed a couple of payments, you can negotiate to resume your regular payments, plus an added amount each month to cover the ones you've missed.
2. Special forbearance: This plan provides additional time to repay the mortgage payments you've missed.
3. Loan modification: This involves changing the terms of your loan to allow you to add the missed mortgage payments and any related legal fees to your total loan balance. You and your servicer then agree on a new mortgage payment schedule.
4. Extra time to arrange a private sale: If you decide to sell your home, this plan enables you to delay a foreclosure, giving you valuable time to organize the sale.
5. VA Compromise Sale: This option is only available to Veterans with a VA-backed mortgage who can prove they are experiencing financial difficulties. The VA approves the sale of your property for less than the outstanding debt but releases you from any further obligation to repay the mortgage. Note that this could result in a reduction in your future home loan benefit.
6. Short sale: Similar to the compromise sale, if your house is worth less than the amount you owe, your servicer may agree to a short sale. Your lender should accept the total proceeds from the home sale as full payment of the debt. Note that this could result in a reduction in your future home loan benefit.
7. Deed in Lieu of Foreclosure: This plan allows you to sign over the deed to your home to your mortgage servicer, which helps avoid the foreclosure process. Just like the short sale and VA compromise sale options, this could also reduce your future home loan benefit.

Getting a Home After a VA Foreclosure

It’s possible to get a VA loan if you have previously foreclosed on a home! Check out How to Get a VA Loan After Foreclosure for more information or reach out to a top VA lender today.